Market Wrap August 2022

Posted in Wealth
09/09/2022 Level One


Local: The ASX200 index lifted 1.2% in August, driven by a resilient reporting season where results impressed in a tough environment.

Global: The S&P 500 lost ground in August dropping -4.1%.

Gold: Gold prices continue to trend lower, moving down US$38 to US$1,716, amid US dollar strength and higher real rates.

Iron Ore: Iron Ore prices dropped US$19 to US$99/Mt as COVID impacts linger and supply lifts.

Oil: Brent Oil prices also declined US$14 to US$96/bbl after a de-escalation in Iraq, stabilized oil exports.



Housing: CoreLogic’s national Home Value Index (HVI) recorded a fourth consecutive month of decline in August, with the downturn accelerating and becoming more geographically broad-based. Down -1.6% over the month, the national index recorded the largest month-on-month decline since 1983.

Every capital city apart from Darwin is now in a housing downturn, with a similar scenario playing out across the rest-of-state regions, where only regional South Australia recorded an increase in housing values for the month.

Sydney continued to the lead the downswing, with values falling -2.3% over the month, however weaker conditions in Brisbane accelerated sharply through August, with values falling -1.8%.

Rental rates increased a further 0.8% in August across CoreLogic’s national rental index, easing after the monthly trend peaked in May when rents rose by 1.0%.



Interest Rates: The RBA Cash rate has now had 5 consecutive rate rises. A 0.5% rise at the start of September has pushed the cash rate to 2.35%. With more rate rises likely before year end.

Retail Sales: Retail sales in Australia rose by 1.3 percent MoM to a fresh record level of AUD 34.67 billion in July 2022, unrevised from the preliminary figure and picking up from a 0.2% gain in the prior month. The latest result marked the strongest pace in retail trade since March, despite cost-of-living pressures.

Bond Yields: The Australian government 10-year bond jumped by 54 bps to 3.60% from the previous month. The US 10-year bond also jumped by 49 bps to 3.13%, as investors are pricing in a more hawkish outlook.

Exchange Rate: The Aussie dollar lost some value against the American dollar at $0.690 and gained value against the Euro at $0.687 for August.

Inflation: Inflation in Australia is currently sitting at 6.1% (June 2022 quarter), the quarterly increase of 1.8% was the second highest since the introduction of the Goods and Services Tax (GST), following the 2.1% increase last quarter (March 2022).

Consumer Confidence: The Westpac Melbourne Institute of Consumer Sentiment fell by 3% from 83.8 in July to 81.2 in August. This reading is on a par with the lows of the Covid and Global Financial Crisis although still well above the lows during the late 80’s / early 90’s recession. Since the recent peak in November 2021 the Index has fallen every month for a cumulative decrease of 22.9%.

Employment: Australia’s unemployment rate unexpectedly hit a new record low of 3.4% in July 2022, compared with June’s print and market forecasts of 3.5%. The number of unemployed fell by 20,000 to 473,900, with the number of people looking for a full-time job falling by 26,000 to 316,700.

US Employment: Total nonfarm payroll employment increased by 315,000 in August, and the unemployment rate rose to 3.7%. Notable job gains occurred in professional and business services, health care, and retail trade.

Agriculture: The gross value of agriculture production is forecast to fall 4% to $81.8 billion, and the value of exports is forecast to be a record $70.3 billion in 2022–23. Global inflation pressures for consumer goods and farm inputs are clouding outlook for demand and farm incomes.

Purchasing Managers Index: The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) dropped 3.2 points to 49.3 points in August 2022, indicating a slight contraction. This is the first time the index has contracted since January 2022 following the Omicron outbreak. Results below 50 points indicate contraction, with lower results indicating a faster rate of contraction.

Sources:  ABS, AFR, AWE, BLS, CoreLogic, Macquarie MWM Research, RBA, TradingEconomics, UBS, Westpac



Can Migration Fix Our Skill Shortage

According to Deloitte Access Economics’ latest issue of Employment Forecasts, Australia’s labour market has been the standout indicator of success since COVID first hit. The unemployment rate is at 3.4%, a near 50 year low, while the labour force participation rate remains near a record high of 66.4%.

The impact of pandemic-era international border closures, combined with an incredibly tight labour market, has seen the number of vacant jobs reach new highs – to the point where there are now fewer unemployed people than job vacancies.

Going forward, growth in the Australian economy is expected to slow amid the impact of inflation running ahead of wages, continued rising interest rates, and weaker global economic conditions. Despite future headwinds, there are still opportunities for white collar workers in Australia, and it may still be some time before the number of unfilled job vacancies returns to more normal levels.

Expectations are that total national white collar employment gains may moderate from a record breaking 352,200 in 2021-22, to a still strong 205,200 in 2022-23. National white collar employment is expected to grow on average by 1.6% per year between June 2022 and June 2032 – outpacing total national employment which is forecast to grow on average by 1.4% per year.

Net overseas migration was positive for the first time since the onset of COVID in the December 2021 quarter. The good news is that there are still more people arriving in Australia permanently, or long-term, than there are leaving – a strong indication that net overseas migration in Australia was positive through the first half of 2022, albeit a fraction of what it was before the pandemic.

Alongside policy to ensure we are developing the necessary skills for the future within Australia, there needs to be a focus on overhauling our needlessly complex skilled migration system to ensure we can also attract workers with the skills we need. The highest order priority is to clearly signal to the world that Australia is open for business – because our pandemic-era border policies created a lingering level of uncertainty among potential skilled migrants.

Employers are calling for an urgent ramp-up of skilled migrants as a priority fix at Labour’s jobs summit in September as unions warn that they will fight for more safeguards to ensure temporary visa workers are not exploited.

Quick wins sought by business include a temporary two-year increase in skilled migration to 200,000 places a year and making temporary skilled migration more accessible and responsive to employer needs by scrapping the so-called targeted occupation eligibility list. This is just a small improvement in an array of polices needed to rebalance our labour market.

Sources: Australian Bureau of Statistics, Deloitte Access Economics


UK Inflation soars as gas prices continue to rise

Recent research conducted by the US investment bank Goldman Sachs warned that UK inflation could peak at 22% next CY if energy prices continue their upward spiral. In the research note Goldman stated that inflation could reach as high as 22.4% and gross domestic product could drop by 3.4% if energy costs keep rising at their current rate.

Such figures have arisen after British households were hit with a projected 80% increase in their energy bills in the coming months, taking the average annual household bill from £1,971 (AU $3,328) to £3,549 (AU $5,994) only further exacerbating the country’s current cost-of-living crisis. The Britain energy regulator Ofgem, announced on Friday that it would raise its main cap on consumer energy bills from October 1 to keep pace with rising wholesale gas prices, which have surged 145% in the UK since early July.

Why are prices rising so fast?

  • Energy bills, which have risen rapidly because of high oil and gas prices. They’re expected to increase sharply again from October when the price cap is next reviewed.
  • Petrol and diesel prices, partly because the war in Ukraine has driven up the cost of crude oil. Prices recently fell from record levels but are expected to remain high.
  • Food prices, as the war in Ukraine squeezes grain production and costs.
  • The cost of used cars has also gone up sharply.
  • Significant increases in the costs of raw materials, household goods, and furniture and in the hospitality sector, including restaurants and hotels.
  • Higher interest rates which are making mortgage payments more expensive for some homeowners.

What’s happening to wages?

  • Pay increases for many people aren’t keeping up with rising prices.
  • Average wages, not including bonuses, rose by 4.7% in the year to June 2022.
  • But when you take inflation into account, the real value of that pay actually fell by 3% compared to 12 months ago.
  • Pay including bonuses was down 2.5%, when adjusted for inflation.
  • Unions say wages should reflect the cost of living – but the government argues this could push inflation even higher.

If, however, energy prices moderate, UK peak inflation is likely to hit 14.8% in January, Goldman’s commodity strategists predicted — well above the 13.3% forecast by the Bank of England earlier this month.

Goldman’s outlook is the latest gloomy forecast for the British economy, with Citi predicting last week that UK inflation would breach 18% in January 2023.

Sources: AFR, Goldman Sachs

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